Question

Creative Computing sells a tablet computer called the Protab. The $875 sales price of a Protab Package includes the following: • One Protab computer, • A 6-month limited warranty. This warranty guarantees that Creative will cover any costs that arise due to repairs or replacements associated with defective products for up to six months . A coupon to purchase a Creative Probook e-book reader for $420, a price that represents a 30% discount from the regular Probook price of $600. It is expected that 25% of the discount coupons will be utilized • A coupon to purchase a one year extended warranty for $70. Customers can buy the extended warranty for $95 at other times if they do not use the $70 coupon Creative estimates that 45% of customers will purchase an extended warranty • Creative does not sell the Protab without the limited warranty, option to purchase a Probook, and the option to purchase an extended warranty, but estimates that if it did so, a Protab alone would sell for $855. Required: 1. & 2. Indicate below whether each item is a separate performance obligation and allocate the transaction price of 90,000 Protab Packages to the separate performance obligations in the contract. 3. Prepare a journal entry to record sales of 90,000 Protab Packages

Answer 1

Item	Perf Obligation	Stand alone Price	% of Total
Protab Computers	Yes	$ 76,950,000	94%
Limited 6 Month warranty	No	$ 0	0.0%
Option to purchase Probook	Yes	$ 4,050,000	5%
Option to purchase Extended warranty	yes	$ 1,012,500 -	1%
Total		$ 82,012,500
Item	% of Total	*Total Transaction Price	Allocated Contract Price
Protab Computers	94%	$ 78,750,000	$ 74,025,000
Limited 6 Month warranty	0%	$	$                                           -
Option to purchase Probook	5%	$ 78,750,000	$                           3,937,500
Option to purchase Extended warranty	1%	$ 78,750,000	$ 787,500
Total			$ 78,750,000
Journal Entry:
Account	Debit	Credit
Cash	$ 78,750,000
Sales Revenue		$ 74,025,000
Deferred Revenue-Discount Coupon		$ 4,725,000